DCIT, Sangrur V. M/s Lotus Processors Pvt. Ltd., Barnala

ITA 913/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4407 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 29-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Set aside
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A CHANDIGARH BEFORE SHRI N.K. SAINI, VICE PRESIDENT AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.913/CHD/2018 ASSESSMENT YEAR: 2012-13 M/S LOTUS PROCESSORS PVT. LTD., B-XIII-1689, LAKHI COLONY, BARNALA. PAN AAKCS8706J VS DCIT, CIRCLE, SANGRUR (RESPONDENT) (APPELLANT) APPELLANT BY : SH. RAJESH KUMAR, ADDL. CIT RESPONDENT BY : SH. ASHWANI KUMAR, CA DATE OF HEARING : 24/04/2019 DATE OF PRONOUNCEMENT : 13/05/2019 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER DATED 25.04.2018 OF THE COMMISSIO NER OF THE INCOME TAX (A) [HEREINAFTER REFERRED TO AS CIT(A) ]. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: 1. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 18,57,527/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST BEARING LOAN ON ONE HAND AND HAS GIVEN INTEREST FREE ADVANCES TO VARIOUS PERSONS BY INVOKING THE PROVISIONS OF SECTI ON 36(L)(III) OF THE INCOME TAX ACT, 1961. 2 2. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 14,70,848/- ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961. 3. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.46,76,663/- ON ACCOUNT OF WASTAGE/SCRAP. 4. IT IS PRAYED THAT THE ORDER OF LD. CIT (A), PATI ALA BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPOSED OFF. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE IMPUGNED ADDITION/DISALLOWANCES HAVE BEEN DELETED BY THE CIT(A) BY FOLLOWING THE ORDER OF HIS PREDECESSO R IN EARLIER A.YS 2011-12, 2013-14 AND 2014-15 ON EXACTLY THE SAME FA CTS AND ISSUES. HE FURTHER SUBMITTED THAT THE DEPARTMENT HA D PREFERRED AN APPEAL AGAINST THE ORDER OF THE CIT(A) DATED 14.10. 2016, RELEVANT TO A.Y. 2013-14 BEFORE THIS TRIBUNAL AND THAT THE T RIBUNAL VIDE ORDER DATED 02.07.2018 PASSED IN ITA NO. 6/CHD/2017 INVOLVING IDENTICAL FACTS AND ISSUES HAS DISMISSED THE APPEAL OF THE REVENUE. 4. WE HAVE PERUSED THE ORDER DATED 02.07.2018 OF TH IS TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR A.Y. 2013-14, WE FIND THAT THE FACTS AND ISSUES INVOLVED ARE EXACTLY THE SAME EXCE PT THE FIGURES OF THE AMOUNT OF DISALLOWANCES MADE BY THE AO. THE RELEVANT 3 PART OF THE ORDER OF THE TRIBUNAL FOR THE SAKE OF T HE REFERENCE IS REPRODUCED AS UNDER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 14.10.2016 OF THE COMMISSIO NER OF INCOME TAX(A), PATIALA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE DEPARTMENT IS AGGRIEVED BY THE ACTION OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE U/S 36(1)(III)OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') AS WE LL AS ON ACCOUNT OF DISALLOWANCE MADE IN RELATION TO EXPENDI TURE INCURRED FOR EARNING OF TAX EXEMPT INCOME EARNED U/ S 14A OF THE ACT. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE DID NOT EARN ANY TAX EXEMPT INCOME. HE, THEREFORE, SUBMITTED THAT IN THE LIGHT OF THE DECISION OF THE HON'BLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT FARIDABAD VS. LAK HANI MARKETING INC. LTD, ITA NO. 970 OF 2008 (O&M), NO DISALLOWANCE WAS ATTRACTED U/S 14A OF THE ACT. H E IN THIS RESPECT HAS INVITED OUR ATTENTION TO THE ORDER OF T HE CIT(A) WHEREIN THE LD. CIT(A) FOLLOWING THE DECISION OF TH E HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT FARID ABAD VS. LAKHANI MARKETING INC. LTD (SUPRA) HAS HELD THAT S INCE THE ASSESSEE DID NOT EARN ANY TAX EXEMPT INCOME DURING THE YEAR, HENCE, NO DISALLOWANCE U/S 14A OF THE ACT WAS ATTR ACTED. 4. THE LD. DR, ON THE OTHER HAND HAS RELIED ON THE FINDINGS OF THE ASSESSING OFFICER. 5. WE FIND THAT THE ISSUE IS NOW SQUARELY COVERED B Y THE FOLLOWING DECISIONS OF THE DIFFERENT HIGH COURTS IN FAVOUR OF THE ASSESSEE. CIT, FARIDABAD VS. LAKHANI MARKETING INC. 226 TAXMAN 45 ( P&H) CIT VS. WINSOME TEXTILES (2009) 319 ITR 204 (P&H) CHEMINVEST LTD VS. ITO (2015) 378 ITR 33 (DELHI) CORRTECH ENERGY P. LTD. (2014) 45 TAXMAN.COM 116 ( GUJARAT HIGH COURT) CIT VS. M/S SHIVAM MOTORS (P) LTD (2014) 272 CTR (ALL) 277 4 IN ALL THE ABOVE REFERRED TO CASE LAWS, THE HON'BLE HIGH COURTS HAVE BEEN UNANIMOUS TO HOLD THAT NO DISALLOWANCE IS ATTRACTED U/S 14A OF THE ACT IN CASE THE ASSESSEE H AS NOT EARNED ANY INCOME NOT FORMING PART OF THE TOTAL IN COME. 6. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE SAME IS U PHELD. 7. SO FAR AS THE ISSUE RELATING TO THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER THE PROVISIONS OF SECTION 36 (I) (III) OF THE ACT, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO PARA 5.3 OF THE IMPUGNED ORDER OF THE CIT(A) WHEREIN THE LD. CIT(A) HAS GIVEN AS CATEGORICAL FINDING THAT DU RING THE YEAR THE ASSESSEE DID NOT RAISE ANY INTEREST BEARI NG LOAN. ONLY ONE LOAN WAS RAISED DURING THE FINANCIAL YEAR 2009- 10 RELEVANT TO ASSESSMENT YEAR 2010-11, WHICH WAS FOR THE SPECI FIC PURPOSE FOR PURCHASE OF ASSETS. THE LD. COUNSEL HAS SUBMITTED THAT THE SAID LOAN WAS FULLY UTILIZED FOR THE PURPO SE OF ASSETS AND NO INTEREST HEARING FUNDS HAVE BEEN DIVERTED FO R MAKING INTEREST FREE ADVANCES. THE LD. CIT(A) AFTER GOING THROUGH THE RECORD, HAS HELD THAT THE ASSESSING OFFICER COULD N OT CONTROVERT THE ABOVE SUBMISSION OF THE ASSESSEE. SI NCE THE ASSESSEE HAD BEEN ABLE TO DEMONSTRATE BEFORE THE LD . CIT(A) THAT THE TERM LOAN RAISED BY THE ASSESSEE WAS USED FOR SPECIFIC PURPOSE FOR PURCHASE OF ASSETS AND NO PART OF IT WA S USED FOR ADVANCEMENT OF INTEREST FREE ADVANCES, HENCE, LD. C IT(A) DELETED ADDITION ON THIS ISSUE. 8. AFTER GOING THROUGH THE ORDER OF THE CIT(A) AND HEARING THE SUBMISSIONS OF THE LD. COUNSEL OF PARTIES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. 9. THERE IS ANOTHER GROUND TAKEN BY THE REVENUE AGI TATING THE ACTION OF THE CIT(A) IN DELETING THE ADDITION O F RS. 55,11,651/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF GENERATION OF WASTAGE / SCARP DURING THE MANUFACTUR ING PROCESS. THE ASSESSING OFFICER OBSERVED THAT IN THE LINE OF THE TRADE BUSINESS OF THE ASSESSEE, A LOT OF WASTAGE AN D SCRAP IS GENERATED, WHEREAS THE ASSESSEE HAD SHOWN HIS WASTA GE AT A VARY LAW RATE OF 0.065%. HE, THEREFORE, SHOW CAUSED THE ASSESSEE AS TO WHY GENERATION OF SCRAP / WASTAGE B E NOT TAKEN AT 0.75% OF THE TOTAL TURNOVER. THE ASSESSE E IN THIS RESPECT EXPLAINED THE PROCESS, WHICH IS CARRIED OU T IN THE BUSINESS PROCESS OF DYEING OF FABRICS AND SUBMITTED THAT THOUGH THE TOTAL WASTAGE OF THE SCRAP IN THE PROC ESS COMES OUT TO ABOUT 6 TO 7% OF THE MATERIAL CONSUMED, HOWE VER, THE SAID WASTAGE GENERATED DURING THE PROCESS DID NOT C ARRY ANY MARKETABLE VALUE. THAT DURING THE YEAR, THE VISIBL E WASTAGE WHICH HAD SOME MARKETABLE VALUE, WAS ONLY 0.305% OF THE RAW MATERIAL AGAINST WHICH THE RECEIPT OF RS. 52,135/- WAS 5 GENERATED AND THAT THE ASSESSEE HAD DULY ACCOUNTED FOR THE SAID AMOUNT IN ITS BOOKS OF ACCOUNT. THE LD. ASS ESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE ABOVE CO NTENTION AND ESTIMATED THE WASTAGE @ 7.5% OF THE TOTAL TURNO VER AT RS. 60,36,786/- AFTER DEDUCTING THE VALUE OF THE WASTAG E DECLARED BY THE ASSESSEE. HE MADE THE ADDITION OF RS. 55,11, 651/-. 10. IN APPEAL, THE LD. CIT(A) DELETED THE ADDITIO N OBSERVING THAT THE ASSESSING OFFICER HAD MADE THE IMPUGNED AD DITION PURELY ON ASSUMPTION AND ESTIMATION BASIS. THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE DULY AUDITED AND THE A SSESSING OFFICER HAD NOT POINTED OUT ANY DEFECT IN THE SAME. THERE IS NO RATIONALE OR BASIS FOR THE ASSESSING OFFICER FOR HOLDING THAT THE TOTAL WASTAGE / GENERATION WAS AT 7.5% OF THE TOTAL TURNOVER. THE LD. CIT(A) CONSIDERING THE OVERALL FA CTS AND CIRCUMSTANCES HELD THAT THE ADDITION MADE BY THE AS SESSING OFFICER WAS PURELY ON ASSUMPTION AND PRESUMPTION BA SIS AND THE SAME WERE NOT SUSTAINABLE IN THE EYES OF LAW. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T(A) ON THIS ISSUE ALSO AND WE UPHOLD THE SAME. IN THE RESULT, THE APPEAL OF THE REVENUE IS HEREBY DISMISSED. 5. BOTH THE REPRESENTATIVES OF THE PARTIES HAVE SUB MITTED THAT THE FACTS AND ISSUES HAVE INVOLVED IN EARLIER ASSES SMENT YEAR WERE IDENTICAL TO THE FACTS AND ISSUES RAISED IN THIS AP PEAL. THEREFORE, TO MAINTAIN THE CONSISTENCY, WE FOLLOW THE ORDER OF TH E TRIBUNAL IN EARLIER ASSESSMENT YEAR AND WE DO NOT FIND ANY MERI T IN THE REVENUES APPEAL AND THE SAME IS DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. (ORDER PRONOUNCED IN THE OPEN COURT ON 13/0 5/2019) SD/- SD/- (N.K. SAINI) (SAN JAY GARG) VICE PRESIDENT JUDICIAL MEMBER DATED : 13/05/2019 AKS- TOUR 6 COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, THE C IT(A), THE DR